[Update] Brookdale and HCP to Acquire 35 Chartwell Communities for $849 Million

Brookdale Senior Living Inc. (NYSE: BKD) and HCP, Inc. (NYSE: HCP) have entered into a definitive agreement to acquire 35 private pay senior living communities from Chartwell Retirement Residences for $849 million.

The properties — which represent the entirety of Chartwell’s U.S. portfolio — will be acquired using a RIDEA joint venture structure with HCP and Brookdale owning 90% and 10%, respectively, of the 5,025 units. The portfolio includes communities in eight states with concentration in Florida, Texas and Colorado, with 46% of the portfolio being assisted living, 45% independent living, 5% memory care and 4% skilled nursing.

“We are pleased to have reached an agreement to sell our U.S. operations to HCP and Brookdale, with Brookdale continuing to manage the properties,” said Brent Binions, Chartwell’s president and CEO. “This transaction allows us to fully concentrate our efforts on properties that we manage.”

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Chartwell says exiting the U.S. at this time allows it to capitalize on the strong U.S. senior housing acquisition market. Additionally, the company says the sale of its U.S. interests will reduce its overall operating risk and allow it to focus on core markets in Canada, where 100% of its units will be located following the acquisition.

According to HCP, the majority of the U.S. portfolio’s communities are located in the nation’s top 31 Metropolitan Statistical Areas (MSAs), with an average portfolio occupancy rate of 89%.

“This portfolio acquisition provides attractive risk-adjusted returns for our shareholders, and also creates value for our operating partner through a real estate driven transaction,” said Lauralee Martin, president and CEO of HCP. “Brookdale’s familiarity with this portfolio will be a tremendous asset as we avoid any transition issues and immediately implement capital investment plans to generate future growth above traditional triple-net escalators.”

Brookdale has operated the communities since 2011, following its acquisition of Horizon Bay, and will continue to manage the properties post-closing under a long-term management agreement.

“This transaction is consistent with Brookdale’s strategy of acquiring managed communities when possible given the company’s elevated understanding of the operations, minimal transition costs and time, the ability to leverage in-place overhead, and the opportunity to exchange a vulnerable third-party management arrangement with a stable RIDEA joint venture structure,” said Brookdale CEO Andy Smith.

According to the company website, Chartwell operated nearly 210 locations across the United States and Canada prior to the acquisition.

The deal is expected to close in the third quarter of 2015 and is projected to generate a first-year cash yield of approximately 6.6%.

The two companies are longtime partners, having previously launched a $1.2 billion joint venture to own and operate 14 entry-fee continuing care retirement communities (CCRCs). Additionally, in conjunction with the Emeritus merger, HCP and Brookdale created a 49-property RIDEA portfolio and 153-property triple-net lease portfolio of former Emeritus properties — which the real estate investment trust says is poised to grow early in 2015.

Tuesday’s announcement comes after Brookdale shareholder Sandell Asset Management Corp. further prodded the nation’s largest senior housing provider to spin off its owned real estate portfolio into a REIT.

The shareholder recently announced its intention to nominate a slate of candidates to replace three longstanding Brookdale directors.

Despite the pressure, Brookdale said it is continuing to evaluate strategic opportunities and is considering, among other things, the financial flexibility, potential value creation opportunities and tax mitigation strategies that real estate ownership affords the company.

Written by John Yedinak and Emily Study

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